Psychological barriers to participation in the labor market: Evidence from rural Ghana

Mental health conditions are strongly associated with reduced labor market participation, but the underlying channels through which such conditions impact labor supply remain unclear. We conduct a two-phase study decomposing this relationship by examining (i) job take-up decisions and (ii) labor supply, output, and earning conditional on job take-up, and (iii) quit rates. In Phase 1, women in rural Ghana are asked whether they would be willing to take-up a cash-for-work job during the lean season when alternative work is scarce. We find that individuals with depression and anxiety, which are common in this population, are much more likely to decline work offers outside the home but equally likely to accept work-from-home positions. In Phase 2, we randomly offer jobs at home to those who were willing to work from home, avoiding selection effects. Neither depression nor anxiety predict work completion, income, or quit rates when working from home. These findings suggest that poor mental health may harm labor market outcomes in traditional jobs outside of the home via reduced take-up, above and beyond the established negative impacts of mental health on productivity in work outside of the home. But, the results also suggest an alternative approach to improving labor market outcomes for those in poor mental health: work-from-home opportunities, which are not associated with lower take-up or lower productivity on the job for those in poor mental health. • Depression and anxiety reduce job take-up for outside-home work in rural Ghana. • No differences in take-up of home-based jobs by mental health status. • Mental health does not affect productivity, income, or quit rates in home-based work. • Work-from-home opportunities may mitigate labor market barriers from poor mental health.